an economy is operating in the short run in an inflationary gap. in the absence of government intervention, which of the following changes will occur in the long run?

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14-12-2022
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an economy is operating in the short run in an inflationary gap. in the absence of government intervention, which of the following changes will occur in the long run?

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ogorwyne ogorwyne · Answer 1 · 2022-12-20T11:42:19+01:00

If an economy is operating in the short run in an inflationary gap. in the absence of government intervention, in the long run, SRAS will decrease because wages adjust to inflation.

What is meant by the inflationary gap?

The difference between the real GDP level currently and the GDP that would exist if an economy were experiencing full employment is known as the inflationary gap. The current real GDP must be higher than the potential GDP in order for the gap to be deemed inflationary.

The difference between the existing and necessary aggregate demand to achieve full employment equilibrium is referred to as the inflationary gap. Prices rise as a result of excessive demand since output cannot increase in tandem with demand growth.

The rise in real GDP is what drives inflation, and the inflationary gap is used to measure and analyze the inflationary pressure.

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